On 22 December 2017, the President signed the Tax Cuts and Jobs Act into law, and, on the same day, the Staff announced publication of Staff Accounting Bulletin No. 118 (SAB 118) setting out its views about applying U.S. GAAP when preparing an initial accounting of the effects of the Tax Cuts and Jobs Act.
Under Financial Accounting Standards Board Accounting Standards Codification Topic 740, Income Taxes (ASC 740), regarding the reporting period that includes the enactment of the Tax Cuts and Jobs Act, the effects of changes in tax laws and rates must be recognised in the financial statements for the period in which such changes were enacted. Because the Tax Cuts and Jobs Act has only been enacted recently, there is a distinct possibility that the accounting for changes under the Tax Cuts and Jobs Act may be incomplete when the financial statements of a company will be issued. As such, SAB 118 provides for an extended "measurement period" in which companies facing this situation must comply with the following:
- where the calculations are complete: the effects of changes from the Tax Cuts and Jobs Act must be reported;
- where the calculations are not complete but reasonable estimates can be determined: the reasonable estimate would be reported as a "provisional amount" during the "measurement period"; and
- where the calculations are not complete and reasonable estimates cannot be determined: the inclusion of a provisional amount will not be necessary, and ASC 740 should continue to be applied based on the provisions of the tax law that were in effect immediately prior to the Tax Cuts and Jobs Act being enacted.
Such provisional amounts will need to be adjusted during a "measurement period" until the completion of the accounting under ASC 740, but may not extend beyond one year from the enactment date.
SAB 118 can be found at:
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